11 Feb Rejecting a Rule 68 Offer of Judgment

More than 10 days before the trial begins, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued. If, within 10 days after being served, the opposing party serves written notice accepting the offer, either party may then file the offer and notice of acceptance, plus proof of service. The clerk must then enter judgment [….] If the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made.

When a defendant believes that it is liable under the FDCPA, but wants to limit the amount it pays, it will sometimes offer to let judgment enter against it for an amount plus usually “fees and costs as determined by negotiation between the parties or, failing agreement, an amount to be determined by the Court.” The “amount” offered is often, but not always, $1,000, the maximum so-called statutory damage award under the FDCPA. Sometimes this a good deal that the plaintiff should take. Other times, the damages offered do not include anything (or enough) for general damages, such as emotional distress. On these occasions, it may make sense to not accept the offer, but before doing so it is important to understand the consequences.

If a plaintiff rejects an offer of judgment and recovers less that the offer amount at trial, he must pay the defendant’s costs. These costs include transcript costs and the like, but it do not include the biggest ticket item, attorney’s fees. As the First Circuit put it: “Rule 68 can never require prevailing civil rights plaintiffs to pay defendants’ post-offer attorney’s fees.” Crossman v. Marcoccio, 806 F.2d 329, 334 (1st Cir. 1986). The same holds true for other, non-civil rights cases. Rule 68 cannot be used to shift fees.

Another important point is that in an FDCPA case an offer of judgment can not used to cut off a plaintiff’s right to recover his own fees from the defendant if he prevails in the case. This is true even if the plaintiff does worse at trial than what the offer provided. This is sometimes misunderstood because in certain cases–such as civil rights cases–fees are part of costs under the statute providing the cause of action. This is not the case under the FDCPA, which separates fees and costs.

However, despite being entitled to post-offer fees under the statute, one must still deal with the reality that the court has broad discretion to determine a fee award for a prevailing plaintiff. The defense will always use an offer (of judgment or otherwise) that is superior to a trial result to undermine a fee application, arguing that the plaintiff’s post-offer fees were not reasonably incurred.

This is one peril in rejecting any reasonable offer in the pre-trial negotiation process and a risk inherent in any FDCPA case.

Nicholas Ortiz, Boston Bankruptcy Attorney

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